Myanmar’s Development Agenda – Opportunities and Challenges

I was fortunate enough to participate at the recent Myanmar Development Summit held in Yangon on the 10th of August 2014. I participated in a panel discussion on the opportunities and challenges for Myanmar’s development agenda.

 

Panel discussion: Myanmar's development agenda - opportunities and challenges
Panel discussion: Myanmar’s development agenda – opportunities and challenges (L-R: Dr Thet Thet Khine, U Aye Chan, U Kyaw Tin, Dr Maung Maung Lay, Reza)

The panel was moderated by U Kyaw Tin, Chairman of the Myanmar Institute of Certified Public Accountants and I shared the panel with Dr Maung Maung Lay, Vice President of the Union of Myanmar Federation of Chambers of Commerce and Industry, UMFCCI, Dr Thet Thet Khine, Secretary General of the UMFCCI and U Aye Chan, CEO of IMA Group.

Developments to date

Over the last few years as Myanmar has opened up economically and politically, there have been some major strides made in a number of areas:

1. Social and political reforms:

Politically we have seen a greater freedom of speech, improved press freedom and broader steps towards national reconciliation. The ongoing dialogue with armed groups in a number of states is also a step in the positive direction.

In the last three years government spending on education has more than trebled (it was increased by 30% in the last year alone) and government spending on healthcare has almost increased five-fold (it grew by 78% in the last 12 months alone).

The government has also implemented a strategy for greater public financial management reforms to enhance efficiency and transparency of government spend.

 

2. Improved monetary policy and central bank independence

The monetary policy has improved starting with the unification of exchange rates (there used to be a time where the official kyat to US dollar rate was 8 kyat to a dollar whilst the market rate was closer to 800 kyat to a dollar!).

The regulations governing central bank independence have also been brought more in line with international best practices, granting the central bank greater independence and autonomy.

 

3. Improved tax collection and reforms

With support from the World Bank, Myanmar is also embarking on a series of ambitious tax  reforms to strengthen revenue administration, which will increase the effectiveness of tax and non-tax revenue mobilization.

This was further supported by the passing of the Union of Myanmar Revenue Law of 2014 and four other tax bills in March this year.

 

4. Improving business, investment and trade climate

Approved FDI has increased to US$4.1 billion in 2013/2014 (almost 300% from 2012/2013 when it was only US$1.4 billion). The investment has also been distributed across a diverse range of sectors from manufacturing (45%), telecommunications (30%) and hospitality hotels (10%). This will prove beneficial in the long term as it will increase employability whereas investment primarily in the resource sector would have not necessarily created sufficient job opportunities. The investment has also come from unlikely trade partners including Ooredoo of Qatar and Telenor of Norway (both in the telecommunications sector).

This improved business climate has come on the back of passing of the Foreign Investment Law (FIL) in late 2012 which provided better clarity for international businesses seeking to do business in Myanmar along with the removal of restrictions and barriers to foreign investment. The highly efficient Directorate of Investment and Company Administration (DICA) have also reduced the time for businesses to establish operations in Myanmar (this is also on the back of my own personal experience as we established our operations in Myanmar).

 

5. Progressive financial sector developments

The government is working very closely with industry stakeholders as Myanmar seeks to establish its first stock exchange in Yangon – the Yangon Stock Exchange (YSE).  This is following the passing of the Securities Exchange Law last year.  Japan’s Tokyo Stock Exchange (TSE) and Daiwa Securities Group, a Japanese investment company will supporting Myanmar in delivering the YSE by October 2015.

A microfinance law was also passed last year to improve access to finance for small and medium sized firms and to increase the level of liquidity in the market.

Banks are also being held to more stringent regulations and are required to improve their capital adequacy ratios to be more in line with international best practices.

 

Some key facts to consider:

  •  GDP growth was 7.5% in 2013 (forecasting 7.8% in 2014).
  • Agriculture provides jobs for over 50% of Myanmar’s workforce.
  • Government budget for 2014 was US$ 19.5 billion (a third of Myanmar’s GDP)
  • Inflation has been creeping up and is expected to increase to 6.6% in 2014 from 5.8% in 2013. This is as a result of the weakening of the kyat vis-à-vis the US dollar, increasing wages (both in the private and public sector), a real estate boom/bubble and increased credit.
  • According to McKinsey, Myanmar has the potential to achieve a GDP od US$200 billion per year by 2030 (it was just under US$60 billion in 2013).
  • The average productivity of a working individual in Myanmar is currently only US$1,500 per annum (which is 70% less than other Asian economies including Thailand, China, Indonesia, India, Vietnam, etc). This low productivity also results in the low GDP per capita.

 

Key areas of focus for sustained development and progress:

Below are seven areas I view as critical for Myanmar’s continued development and progress. The achievements to date remain delicate and can be easily derailed if some of the below trends and developments are not addressed sufficiently.

 

1. A need for harmonious development.

One of the biggest perils faced by rapidly emerging economies is a severely widening income gap. It is vital that Myanmar addresses the issue of income inequality by providing broader employment opportunities and increase the number of middle-class Burmese.

It is also important that Myanmar’s leadership resolves on-going ethnic and sectarian tensions and friction in the country. This can severely destabilise the country and reduce the quality of life for Myanmar’s people. There has to be greater social and religious tolerance. Persistent incidences of communal violence between the Buddhists and Muslims are exacerbating the tensions. The government should support further initiatives by centrist leaders of the Muslim and Buddhist communities and support greater dialogue between the various communities. There needs to be greater efforts to reform education starting with the primary levels, to encourage greater tolerance for the different ethnicities and religions in the country.

The role of the military is still not entirely clear and this ambiguity needs to be resolved for a greater entrenchment of democracy taking root in the country so as to produce the optimal opportunities for further growth.

 

2. Improving access to education and creating educational opportunities for all.

Myanmar’s investment in education has increased significantly over the last three years but it still has one of the lowest averages of schooling the world at just four years. The universities and institutions of higher learning remain chronically underfunded and after four decades of neglect, do not yet have adequate infrastructure. However, this is slowly changing with the likes of Yangon University, Yangon University of Economics and Dagon University striking up partnerships with other top universities and organisation. This will help improve the teaching faculty and also provide greater exposure for the students and staff of these universities which will in turn improve overall performance.

A good national education is also essential for enhanced social mobility. The notion of social mobility is critical in helping people move out from the cycle of poverty and in increasing the middle class segment of a nation. Social mobility can only take effect if the right opportunities and education is provided to the people. As Myanmar continues its growth and development, the educational institutions will need to prepare Burmese youth with the right skills and capabilities so that they can gain meaningful employment and support Myanmar’s development.

 

3. Improving employability, productivity and efficiency

For growth and development to remain inclusive and sustainable, it is important that investment continues in the areas of labour intensive industries and sectors such as manufacturing.

The majority of the population still live in poverty (GDP per capita based on purchasing power parity is about US$3.60 per day)

The government is focusing on an export-led growth supported by productivity gains in agriculture and industrial development. President Thein Sein’s ‘Framework for Economic and Social Reforms’ launched in 2011 emphasised the need for a market-driven economy to support economic growth and to provide jobs and opportunities for Burmese.

There must be greater support provided to farmers and the agricultural sector (which as I’ve stated above provides employment for more than half of Myanmar’s working population) to introduce modern practices and improve productivity. Over time, this ensures greater food security for Myanmar and it also helps to boost the export-driven economy which Myanmar is gearing up towards as food production increases. Myanmar’s agricultural sector is also endowed with the 25th largest arable land in the world and has ten times the per capita water endowment of China and India. This gives the opportunity for Myanmar to be a true powerhouse in agriculture and help feed the world’s growing population.

 

4. Increasing access to finance

As Myanmar’s banking sector continues with reforms, increasing access to finance for smaller and medium sized businesses will help increase further growth, productivity and employment. There isn’t sufficient liquidity in the market and SMEs in Myanmar do not yet have the same impact as SMEs in other ASEAN countries. Part of this is due to a lack of sufficient access to finance which will allow for Myanmar SMEs to compete with their regional counterparts.

On an individual level, more than half of Myanmar’s population have no access to financial services, 30% are using unregulated services and only 20% have access to regulated financial services. The limited access to regulated financial services not only impose significant costs on poor people given interest rates of up to 240%-a-year compared to up to 36%-a-year for regulated services, but informal mechanisms also offer individuals limited protection, less choice and lower returns.

 

5. Sustained commitment to reforms and global standards.

Myanmar has adopted international standards in a number of areas. They adopted the International Financial Reporting Standards (IFRS) along with the International Standards on Auditing (ISA). The government, in an effort to boost transparency and greater fiscal control and management have also adopted the International Public Sector Accounting Standards (IPSAS).

Myanmar is also currently reforming the Companies’ Act which is still loosely based around the 1914 Burma Companies Act! This will ensure greater clarity for enterprises operating in Myanmar and also improve business and investor confidence and sentiment.

Myanmar has also recently become a signatory to the Extractives Industries Transparency Initiative (EITI), a global anti-corruption scheme that requires member governments to disclose payments earned from oil, gas and mineral wealth. Burma’s EITI arrangement could also be expanded to include hydropower and forestry.

Such initiatives will support Myanmar’s reform efforts and development and pave the way towards strong frameworks that support sustainable and inclusive growth.

 

6. Greater transparency, accountability and robust governance

President Thein Sein set up an anti-corruption committee to weed out corrupt public officials. Corruption poses one of the most severe threats to Myanmar’s reforms and development. Crony capitalism exacerbates issues of income inequality and social discontent and the government will need to continue to act to curb corruption.

He also implemented various initiatives to improve administrative reform and cutting red tape.

Though efforts have been made to establish a stronger rule of law, the daily papers recount stories of land grabs, ethnic and sectarian conflicts and corruption and the pervasive conflicts of interests across all levels of government and business. There needs to be grater efforts in the areas of establishing an independent judicial system that will allow for a stronger implementation of rule of law. A clear and robust rule of law improves public confidence, enhances investor sentiments and paves the platform for sustainable growth.

 

7. Capacity building with an eye on sustainability

Myanmar has to undertake sufficient capacity building – both in terms of people capacity as well as physical capacity.

Myanmar’s current physical infrastructure is not adequate to meet future growth demands needs. Massive infrastructure investment in the areas of power, water, rail, road are being planned both locally and with foreign investors’ assistance. However, as Myanmar builds more roads, more railway tracks, better power grids and improved water systems, it will be important that there is effective and well-managed town planning and resourcing. We already are witnessing severe traffic congestion and delays, particularly during peak periods, and it this continues, Yangon’s traffic issues could well rival Jakarta’s or Bangkok’s and this becomes a huge social and business cost. Investment in technological upgrades and telecommunications must also continue as Myanmar’s telecommunications and Internet infrastructure still lags that of the rest of ASEAN.

These infrastructure improvements must also consider the wider impacts on sustainability (including social, human and environmental). Myanmar’s decision to suspend the construction of the Chinese-backed Myitsone Dam in Kachin state due to environmental concerns was a step in the right direction. It is important that Myanmar’s leadership consider the longer term impacts over the possible short-term benefits when making infrastructure plans and decisions.

Physical capacity building must be matched by sufficient human capacity building too. As has been described earlier, there needs to be appropriate educational, training and development opportunities for people to ensure that they have the right skill sets, aptitudes and capabilities necessary to support Myanmar’s development. People and physical infrastructure development go hand in hand and a holistic approach needs to be taken to ensure longer term, viable and sustainable development for Myanmar.

Ultimately, it is vital that the right implementation approach is taken to the policy developments taking place in Myanmar. Policy must translate into action or inclusive growth, economic and social progress and sustainable development will merely remain a pipe dream for Myanmar.

 

References:

  1. Myanmar Economic Update, Asian Development Bank
  2. Myanmar’s Moment, McKinsey
  3. Myanmar:  Between Economic Miracle and Myth, Institute of Southeast Asian Studies (ISEAS)
  4. Sustaining Myanmar’s Transition, Asia Society

 

Indonesia’s Economy – Opportunities and Challenges – notes from a lecture by Bapak Gita Wirjawan, Minister for Trade, Indonesia

ImageS Rajaratnam School of International Studies (RSIS) Distinguished Public Lecture by Bapak Gita Wirjawan, (GW) Minister of Trade, The Republic of Indonesia. (2nd September 2013, Pan Pacific Singapore) on “Indonesia’s Economy: Future Challenges and Opportunities.”

I had the pleasure of attending the distinguished public lecture by Pak Gita last week and I wanted to share some salient points from the discussions

 

Key highlights and introduction

  • July results for trade is a continuation of the trends observed in June – and are actually worse. (There was a US$2.3 billion trade deficit in July 2013 alone – cumulative deficit of US$6 billion for the whole of 2013). (Click here to see news on the latest trade deficit)
  • Continued outflow of capital resulting in a downward pressure on the currency.
  • The ongoing slowdown in Europe and uncertainty in the US/Middle-east is also having knock-on effects on Indonesia.
  • We are witnesseing a “recalibration of the global economic outlook.”
  • However, Indonesia has seen significant progress made under the Susilo Bambang Yudhoyono (SBY) presidency – Under Sukarno’s era, the GDP per capita was around US$500 per  capita – this went up to US$1,200 under the Suharto era. However the Asian Financial Crisis in 1997-1998 had a catastrophic impact on Indonesia, where the GDP per capital plummeted to US$600 per capita. Indonesia also very narrowly avoided the Balkanisation of the country during that period.
  • After the political reforms post-Suharto, GDP climbed steadily to US$1,100 under the Megawati presidency and today (2013), the GBP per capita has just about exceeded US$5,000 per capita under the SBY presidency. This has also resulted in the increased purchasing power of Indonesia leading to heightened domestic consumption, particularly from a growing middle class.

 

Can Indonesia emerge from the middle-income trap?

  • Indonesia’s improved its policy and position in the fiscal space.
  • However in the social space, the gini coefficient (one indicator of income inequality) has risen, which implies a widening income gap and disparity. This remains a critical issue which the government needs to resolve.
  • Furthermore, there is still an over-reliance on the commodities sector which is prone to very violent swings and shocks.
  • Infrastructure development remains a challenge for the country.
  • The needs to be further work done in the educational space as well.

 

Education and the economy

  • In 15 years, there will be 150 million Indonesians under the age of 30.
  • There remains an urgent need to sharpen the educational infrastructure.
  • As GW says, “It is important that we need a good runway, not just to land, but to also support us in taking off.”
  • Between 2012-2022 – it is estimated that Indonesia’s accumulated GDP be will be over US$60 trillion – on a cumulative basis.
  • There needs to be a supply side narrative to realise this estimated accumulated GDP and that remains the challenge.
  • The SBY government leaves a sustained economic trajectory for Indonesia.

 

The woe of the number of taxpayers (or lack thereof!)

  • For an economy in the top 20 largest economies grouping – the G20 – there are fewer than 20 million tax payers! (comparatively?)

 

Indonesia and her geopolitical relevance

  • GW highlighted the example of how South Korea has used its soft power effectively (from Gangnam style to Samsung products) to drive international trade and economic growth. What can Indonesia do to achieve a similar impact?
  • GW also highlighted that Indonesia has the ability to develop a high degree of political relevance because:
    • Indonesia has the potential to serve as the ‘middle power’ to narrow the gap between the Middle-East and the West
    • Indonesia can also narrow and bridge the gap between China and the US (a slightly debatable claim?!)
    • However, Indonesia needs sustained political order in order to develop and create this geopolitical relevance.
      • Indonesia must engage in Democracy 2.0 – the next iteration of her democratic freedoms enjoyed post-Suharto.
      • Improve her manufacturing and technological sector (invest in high-quality and high-yield technology and sectors).
      • Without Democracy 2.0 – it is highly unlikely that Indonesia will sustain her political and economic reforms and progress. Areas such as corruption must be tackled with and though there has been some good initial progress, this must remain sustained for there to be tangible returns and a progressive shift.

Indonesia as the ‘middle power’

  • Indonesia believes in regional cohesion and solidatiry.
  • ASEAN is a great example of multilateralism – socio-political, cultural and economic solidarity have helped ASEAN overcome initial challenges and be a more cohesive and effective regional bloc.

 

The future of Indonesia

  • Indonesia must continue her path of bundling pluralism and democracy.
  • Economic growth must be achieved hand in hand with economic equity – otherwise the unbalanced growth will have severe social impacts and fractures.
  • Without this economic equity – all of the work being undertaken now will be an exercise in failure.
  • This will take time to achieve.
  • Indonesians have now come much closer together than ever before (Indonesia has the second highest Facebook usage and the third most users on Twitter).
  • Indonesia and Indonesians must have the ability to say and proclaim that they have the wherewithal to move on with the necessary reforms and changes required for Indonesia’s sustained progress.

 

Nepal – reflections on opportunities

Image

Having just returned from Kathmandu, I realise that it is one of the few places in the world where there is a direct inverse correlation between the temperature of the environment and the warmth of the people. The colder it gets, the warmer the people!

The purpose of this is to share some personal thoughts on how Nepal could further develop its economy and deliver on its vast potential. It is not intended to give an economic analysis of Nepal’s development, but for robust information in that area, the following link will be a good place to start: http://www.adb.org/countries/nepal/economy  

Specific areas for development

  • Improvements in airport infrastructure and management (in brief: outsource to external private contractors)

The airport management system at Nepal currently is not optimal nor ideal to support increased volumes of tourist arrivals. The immigration queues are normally snaking through the entry doors and it takes an excessively long time for individuals to clear the airport customs. Airports tend to provide the first view to a new tourist and shape one’s own perceptions of a country. First impressions tend to be lasting ones.

Airport infrastructure improvements are extremely financially incentive affairs and governments often find it difficult to raise necessary capital and finances to support the required improvements. However, one possibility the Nepal government can consider is to outsource the management of the airport, immigration and customs duties to an independent private company and impose on them strict Service Level Agreements (SLAs).  This is widely practiced in countries such as Singapore where SATS (Singapore Airport Terminal Systems) Pte Ltd is the private contractor who manages the Changi Airports. This has led to better efficiencies and also improved the customer/passenger experience.

An improved airport management system will certainly encourage repeat tourists and business visitors owing to the ease of travel and entry/exit into Nepal. It also will lead to better clarity on immigration and customs procedures and systems (something that is not clearly available at the moment).

  • External tourist agency for Nepal in select countries (in brief: Nepal as a centre for tourism. Regional/international tourism centres established by  the Nepal government. Tie-ups with regional airlines serving Nepal airport. Consider new potential markets like the Middle East and South America aside from traditional visitor markets in South Asia, Europe, Australia and South East Asia). 

Nepal should also consider establishing tourism centres in a number of targeted countries to encourage tourist arrival numbers. The impact of a tourism centre in increasing the number of a visitors from a particular country cannot be underestimated.

This will require a significant investment on Nepal’s part, but with the increased tourism dollars as a result of these investments, we can be reasonably certain that there will be a significant returns on investment (with a relatively short payback period).

Nepal should also consider working with airlines serving Nepal (particularly regional ones like Silkair, Thai Airways and Qatar Airways) to promote Nepal as a centre for tourism destination and to set up joint country promotions. This will have an impact in increasing passenger volume for both the airlines and also Nepal.

In addition to the traditional markets of South Asia, South East Asia, Europe and Australia, Nepal should also perhaps consider new markets like the Middle East (where Nepal can be an attractive and relatively nearby destination during their sweltering, hot summer seasons) , South America (where the allure of the mountains of Nepal can prove to be an intoxicating difference) and Africa (particular the rising middle-class in Africa who seek to explore new places aside from the traditional European/American destinations).

  • Burgeoning MICE (Meetings, Incentives, Conferences, exhibitions) potential for Nepal (in brief: Nepal could be a choice location conferences, regional corporate meetings, exhibitions, staff retreats etc for most Asian countries)

Nepal’s geographical proximity to a wide number of countries (from Europe to Asia) and her natural advantages (beauty of surroundings, weather) and relative low costs could result in Nepal being a primary MICE location. Plenty of large corporate companies could host their regional meetings, staff retreats and conferences and exhibitions in Nepal.

Obviously this will necessitate investment in other areas including infrastructure (roads, stable electricity, etc), facilities (meeting halls, sufficient business grade hotels, etc) and training of local staff to accommodate the needs that come along with MICE.

  • Nepal as the medical destination of choice (in brief: Nepal could be a key medical hub for Asia and Europe and has natural advantages which can facilitate this development including great weather, relative low-cost and a generally spiritual environment conducive for healing)

Nepal has plenty of natural advantages that could potentially establish it as a key medical hub for medical visitors from Europe, the Middle East and Asia. There are already plenty of regional students pursuing their medical degrees (MBBS) in Nepal. If investment is made by a private medical health group and encourage some key physicians and medical experts to be based in Nepal at different times in the year, there is a real possibility of Nepal becoming a choice destination for individuals seeking medical treatment. Currently, Asian and European individuals go to Singapore, Thailand, India and Cuba (which has an excellent medical system). Nepal could also join the ranks of these nations.

Furthermore, Nepal also has a calming and enriching spiritual environment which is critical for healing. Emotional fulfillment is critical to physical recuperation.

  • Promotion of Nepal as an ecotourism destination and perfect location for movie/film shoots. 

Nepal has significant potential to be a key ecotourism hub. Nepal needs to ensure that in the wake of various industrial developments (particularly in the energy sector) that it does not neglect her own environmental obligations and protection of its rich biodiversity.

Nepal’s scenery and settings could also be a prime film shooting location for Bollywood and even Hollywood films!

The above are some suggested developmental opportunities for Nepal. A nation that has gone through significant changes in a relatively short span of time. However, it is a nation that has kept its heart and where people remain fundamentally passionate about the causes that matter the most for them and their loved ones. If this passion is retained, then I am in no doubt that the good times will be back soon!